HistoricalDevelopment - Harvard University

CHAPTER SEVEN

Historical Development

Nathan Nunn

Department of Economics, Harvard University, NBER, and BREAD, 1805 Cambridge Street, Room M25, Cambridge, MA 02138, USA

Abstract

This chapter surveys a growing body of evidence showing the impacts that historical events can have on current economic development. Over the past two decades historical persistence has been documented in a wide variety of time periods and locations, and over remarkably long time horizons. Although progress continues to be made identifying and understanding underlying mechanisms, the existing evidence suggests that cultural traits and formal institutions are both key in understanding historical persistence.

Keywords

Persistence, Colonialism, Institutions, Norms, Culture, Path dependence

JEL Classification Codes

H11, N00, O10, 050, P51, R58, Z13

7.1. INTRODUCTION

In recent years,a new dynamic,empirical literature has emerged examining whether historical events are important determinants of current economic performance.1 The origins of this literature can be traced to three lines of research that began approximately a decade and a half ago: Engerman and Sokoloff (1997, 2002), La Porta et al. (1997, 1998), and Acemoglu et al. (2001, 2002). Although each line of research had different motivations,what was common to them was that each provided an analysis,and supporting evidence, for how one important historical event--Europe's colonization of the globe-- was important for long-term economic growth.

Since this time, the literature has developed in a number of ways. Most notably, other important events have also been examined. These range from systems of labor coercion,Africa's slave trades, medieval long-distance trade,Atlantic trade, the Protestant Reformation,overseas missionary work,the French Revolution,the Mexican Revolution, the forced opening of China's treaty ports, the adoption of new food crops during the

1 See Nunn (2009) and Spolaore and Wacziarg (forthcoming) for recent reviews of this literature.

Handbook of Economic Growth, Volume 2A ISSN 1574-0684,

? 2014 Elsevier B.V.

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Columbian Exchange, the adoption of the plough, the invention of the printing press, the Neolithic Revolution, and various environmental catastrophes.

The typical study involves the collection and compilation of new and impressive data. Although this in and of itself is an important contribution, the real contribution is the use of the data to convincingly test hypotheses related to historical development. The most enlightening papers are able to trace the full impacts of a historical event through time, while examining specific channels and mechanisms.

This chapter provides a summary of this new literature. As we will see, once one surveys the progress made to date, it is impressive what the recent wave of quantitative historical studies has taught us about historical economic growth and development.

7.1.1 The Origins of the Literature

The origins of the historical development literature can be found in three sets of papers. What the three papers have in common is that they all examine European colonial rule. However, their motivations are very different.

The first study, written by economic historians Engerman and Sokoloff (1997), is a historical narrative, supported with descriptive statistics. In it they examine the importance of factor endowments and colonial rule for the subsequent economic development of colonies within the Americas.They argue that NewWorld societies that were endowed with soil and climate suitable for growing lucrative, globally traded commodities, such as sugar, tobacco, and cotton, developed plantation agriculture, and with it, the use of slave labor. In the Spanish colonies, characterized by sizable indigenous populations and large reserves of gold and silver, forced labor was instituted. The use of slavery and forced labor resulted in economic and political inequality, both of which inhibited long-term economic development.

Interestingly, the other two seminal articles were not inherently interested in better understanding the history of European colonial rule. For example, the interest of Acemoglu et al. (2001) was in testing whether domestic institutions are a fundamental determinant of economic prosperity today.The interest of La Porta et al. (1997, 1998) was in identifying the causal impact of investor protection on financial development. What motivated both studies to examine colonial rule is the fact that the historical episode provides a source of variation in domestic institutions (in the case of Acemoglu et al.) and in investor protection (in the case of La Porta et al.). Both studies exploited European colonial rule as a natural experiment, focusing on a different dimension or characteristic that was argued to provide exogenous variation that they could use to identify their effect of interest.

La Porta et al. (1997, 1998) argue that because the legal tradition of the colonizer was transplanted to the colonies, the identity of the colonizer had an important impact on the legal system that evolved and, in particular, on contemporary investor protection. In particular, they show that former colonies with a legal code based on Roman civil

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law--these were the colonies of France, Spain, and Portugal--had weaker investor protection and less financial development relative to former British colonies with a legal system based on common law.

Acemoglu et al. (2001) argue that a primary determinant of the form (and long-term impacts) of colonial rule was the disease environment faced by potential European settlers. In temperate areas, like Canada,Australia, and the United States, European mortality rates were moderate enough to facilitate European settlement on a large scale. In these areas, the Europeans brought with them their values and beliefs and developed European-like institutions that emphasized the protection of property rights. In areas such as sub-Saharan Africa, where European mortality was high due to diseases like malaria and yellow fever, Europeans did not settle. Instead, they engaged in an extractive strategy. Rather than settling in a location, they set out to extract natural resources without regard for the consequences. Arguably, this strategy was facilitated by a lack of property rights and other similar institutions. Motivated by this historical narrative, Acemoglu et al. used a measure of early settler mortality as an instrument for contemporary domestic institutions to estimate the causal impact of institutions on long-term economic development.

The analysis of the three lines of research showcased how insights can be gained by examining economic growth and development from a historical perspective. Specifically, they showed how historical episodes can provide econometrically useful sources of exogenous variation. More importantly, they also showed that history matters and that it can have long-term persistent impacts that continue to influence growth and development today.2

Following these early studies, a large number of subsequent papers have emerged examining economic growth and development from a historical perspective. In the following section, I begin an overview of this literature by first describing a number of studies that examine other dimensions and aspects of European colonial rule, the historical event that has received the most attention in the literature. In Section 7.3, I then turn to an examination of studies that have investigated the long-term impacts of other historical events. These include the Columbian Exchange; various episodes of increased trade and globalization; episodes of warfare and armed conflict; expulsions and forced population movements; religious reformations; and important technological innovations. Following this, in Section 7.4, I turn to an important insight that has emerged from the literature: geography has important impacts on development today working through its impacts on historical events.

After having surveyed the evidence for the importance of history for contemporary economic development, I then turn to causal mechanisms. In Section 7.5, I summarize

2 As with any seminal paper, extensions, comments, criticisms, criticisms of comments, criticisms of criticisms, etc. soon emerged. In an effort not to get lost in the weeds, I do not discuss these papers here. See for example, Easterly and Levine (2003), Glaeser (2004), Olsson (2004), Rodrik et al. (2004),Austin (2008),Albouy (2012), and Acemoglu et al. (2012).

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the evidence that has been uncovered for the relative importance of various channels of persistence, including multiple equilibria and path dependence; domestic institutions; cultural values and beliefs; and genetic traits.

The final two sections of the chapter,Sections 7.6 and 7.7,discuss unresolved questions in the literature and offer concluding thoughts.

7.2. EUROPEAN COLONIAL RULE

7.2.1 Americas

The studies that examine the impacts of colonial rule in the Americas tend to focus on testing the hypothesis that initial endowments affected the extent of economic and political inequality,both of which were detrimental for long-term economic development (Engerman and Sokoloff, 1997). In a followup study, Engerman and Sokoloff (2005) provide additional evidence for their hypothesis by documenting a positive relationship between economic inequality and political inequality, measured by the inclusiveness of voting rights. Sokoloff and Zolt (2007) document a link between inequality and lower taxes on wealth and income and less spending on public goods such as education.

While the evidence put forth by Engerman and Sokoloff in support of their hypothesis primarily takes the form of historical narrative and descriptive statistics, a number of studies have undertaken more formal tests of their hypothesis. Bruhn and Gallego (2012) examine variation across 345 regions within 17 countries from North and South America. They identify a strong negative correlation between long-run development and initial colonial specialization, in what they call "bad" activities, which Engerman and Sokoloff (1997) argue display economies of scale and therefore relied heavily on exploited labor,e.g. sugar, coffee, rice, cotton, and mining. They provide additional evidence, also consistent with Engerman and Sokoloff (1997), that other activities, like subsistence farming, cattle raising, or manufacturing, are not negatively related to long-term development, unless there were large native populations that could potentially be exploited in the production process.

Naritomi et al. (2012) provide evidence consistent with Bruhn and Gallego (2012), but focus on Brazil and two commodities, gold and sugar. They examine variation across approximately 5000 Brazilian municipalities and quantify each municipality's historical involvement in the gold boom (during the 1700s) and the sugarcane boom (1530?1760). The authors show that the municipalities that experienced the sugar boom have greater land inequality today, while municipalities that experienced the gold boom have worse domestic institutions today.

The key mechanism in Engerman and Sokoloff 's hypothesis is inequality, both economic and political. A number of studies provide evidence that calls into question their assertion that greater economic inequality is associated with greater political inequality and less development. Dell (2010) examines the mita forced labor system, which was instituted by the Spanish in Peru and Bolivia between 1573 and 1812. The mita system

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required that over 200 communities supply one seventh of their adult male population to work in the silver mines of Potos? and mercury mines of Huancavelica. The study combines contemporary household survey data, geographic data, and data from historical records; and uses a regression discontinuity estimation strategy to estimate the long-term impacts of the mita system. Dell's study exploits the fact that the boundary of the mita conscription area was clearly defined and that other relevant factors likely vary smoothly close to the mita boundary. Because of this, comparing the outcomes of mita and non-mita districts very close to the border provides an unbiased estimate of the long-term effects of the mita. The study finds that the mita system had an adverse effect on long-term economic development. All else equal, former mita districts now have an average level of household consumption that is approximately 25% lower than households in former non-mita districts. The study finds that a significant proportion of the difference can be explained by lower levels of education and less developed road networks.

Dell argues that the underdevelopment of mita districts was due to an absence of large haciendas. These haciendas lobbied the crown for public goods, like education and roads, and provided these goods directly. Therefore, in contrast to the EngermanSokoloff hypothesis, she finds better long-run development outcomes in locations with large haciendas and greater inequality (not less).

Acemoglu et al. (2008) also question Engerman-Sokoloff 's inequality hypothesis.The authors first examine municipalities within Cundinamarca, Colombia and show that late 19th century land inequality is positively associated with late 20th century secondary school enrollment. They further question the presumption that economic and political inequality go hand in hand. After constructing a measure of political inequality using data on the identity of mayors for 4763 appointments held by 2300 different individuals between 1875 and 1895, they show that economic inequality and political inequality are not positively correlated. In fact, they argue that greater land inequality was better for long-term development because the landowners provided greater checks on the actions of the political elite.

Examining variation across US states and counties and across countries within the Americas, Nunn (2008b) also considers the role of inequality. Although he does find that, consistent with Engerman and Sokoloff, there is a negative relationship between slave use and current income, he fails to find evidence that inequality is the intervening channel. Although past slave use is positively correlated with historical and current inequality, controlling for historical land inequality does not reduce the negative impact of slavery on current income. Further, there is no relationship, either in the past or today, between inequality and income.

7.2.2 Asia

Early European contact with India occurred through overseas trade, beginning in 1613. Colonization of the subcontinent occurred through a number of battles. Beginning with the Battle of Plassey in 1757, the British East India Company (EIC) gained control

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